Higher Dimension Materials, Inc., Appellant,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A17-1043

Higher Dimension Materials, Inc.,
Appellant,

vs.

Performance Fabrics, Inc., et. al.,
Respondents.

Filed April 2, 2018
Affirmed
Connolly, Judge

Washington County District Court
File No. 82-CV-15-1088

Rabea Jamal Zayed, Forrest K. Tahdooahnippah, Dorsey & Whitney, LLP, Minneapolis,
Minnesota (for appellant)

David L. Hashmall, Daniel R. Haller, Felhaber, Larson, Fenlon & Vogt, P.A., Minneapolis,
Minnesota; and

Jon Bylsma (pro hac vice), Varnum, LLP, Grand Rapids, Michigan (for respondents)

Considered and decided by Halbrooks, Presiding Judge; Connolly, Judge; and
Reilly, Judge.

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U N P U B L I S H E D O P I N I O N
CONNOLLY, Judge
Appellant challenges the grant of summary judgment dismissing its claims against
respondents on the ground that the claims were precluded by the award in an arbitration
between appellant and one respondent. We affirm.
FACTS

Appellant Higher Dimension Materials, Inc. (HDM) manufactures a cut-resistant,
flexible fabric (SuperFabric ) used by respondent Performance Fabrics, Inc. (PFI), in its
products.
In November 2011, HDM and PFI entered into the Amended and Restated License
and Supply Agreement (the L SA), the successor to their previous License and Supply
Agreements. The LSA provided that: (1) HDM would give PFI the exclusive right to make
and sell certain products made from SuperFabric in some markets and nonexclusive rights
in other markets; (2) the rights included using certain HDM intellectual property, including
patents, patent applications, trademarks, and copyrights; (3) PFI was required to purchase
all of its fabric from HDM; (4) HDM agreed to sell PFI fabric at certain prices; (5) PFI had
to pay royalties on sales of finished goods made from SuperFabric; (6) if HDM could not
supply the fabric PFI needed, PFI had the right to use HDM’s intellectual property to
continue to exercise its rights under the LSA; (7) PFI had to contract with HDM or it s
subsidiary HDR to make the fabric; (8) if HDR could not produce the needed fabric within
30 days, PFI could contract with a qualified third party that HDM approved, and (9) claims
for money or economic damages arising from the relationship created by the LSA were to
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be resolved by arbitration. The LSA was signed by the CEO of HDM, Dr. Young -Hwa
Kim, and the CEO of PFI, respondent Steve Van Ermen.1
In 2013, Van Ermen told the PFI board that he believed HDM might not be able to
meet PFI’s demand for SuperFabric, particularly if HDM filed for bankruptcy. Van Ermen
asked HDM for assurance of its ability to supply but was not satisfied with the assurance
HDM provided. Van Ermen informed HDM that PFI planned to create and produce a
replacement fabric (R-fabric) but would not use R-fabric unless and until HDM could not
supply the SuperFabric PFI needed.
To develop and produce the R -fabric, PFI’s three corporate officers ‒Van Ermen,
Brent Lohrmann, and Dave Selvius‒decided to establish a related company, CFI. The co-
managers of CFI were Van Erme n and Lohrmann, and all CFI staff were PFI employees ;
thus PFI and CFI were closely interrelated.
CFI hired respondent Dr. Richard Ollmann, a senior research scientist who had
worked for HDM fr om 2008 until HDM termin ated his employment in 2009, and
respondent John Johnson, a former HDM vice -president who had left HDM two years
earlier. Van Ermen told Ollmann and Johnson that PFI was obligated to source from HDM
anything that was HDM’s intellectual property, i.e., fabric or fabric-like products that were
patented or on which patents were pending or had been applied for, and anything
“conceived and developed” by HDM. PFI’s employment agreements with Ollmann and
Johnson required them to honor any obligations to former e mployers, and CFI agreed to

1 There was at times a level of animosity between Kim and Van Ermen, which was reflected
in the internal communications of both HDM and PFI.
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indemnify them from claims arising from an alleged breach of those obligations, including
confidentiality.
PFI and CFI commissioned a scientist to draft a white paper to establish that R -
fabric is produced using information th at is publicly available, and not on HDM’s
proprietary information. The white paper acknowledged that it was based on limited
information about HDM’s SuperFabric, but said there were many resins, formulating aids
and processes, and supporting fabrics avai lable from other manufacturers and suppliers.
The scientist told Ollmann that the fabric Ollmann had described constituted “a totally new
invention” in her company’s opinion.
Ollmann formulated a resin for the R -fabric, based on a publicly available epoxy
resin. Ollmann testified that he did not recall the HDM resin formula and used his own
knowledge and publicly available materials. A scientist then employed by HDM reviewed
Ollmann’s lab books and testified that they showed that the base formula w as similar to
the resin Ollmann developed while working for HDM and that the modifications Ollmann
made to the publicly available resin indicated that he was using knowledge gained while
he worked at HDM.
HDM demanded arbitration on claims of breach of con tract, misappropriation of
trade secrets, and efforts to wrongfully acquire HDM’s confidential and proprietary
technology. The demand sought economic damages, a declaratory judgment, and a
permanent injunction pursuant to the LSA. CFI began to produce R -fabric. PFI decided
to use R-fabric in place of SuperFabric, a decision based on the amount PFI had spent in
developing R-fabric, its distrust that HDM could supply PFI’s fabric needs, and its belief
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that HDM’s trade secrets were not necessary to produce R-fabric. Ollmann resigned from
PFI/CFI shortly after learning of the decision.
In March 2015, while the arbitration was pending, HDM brought an action in district
court, alleging counts including: (1) trade secret misappropriation under the Minnesota
Uniform Tr ade Secrets Act (MUTSA) (all respondents); (2) breach of LSA (PFI);
(3) tortious interference with LSA (CFI); (4) tortious interference with LSA (Van Ermen);
(5) breach of employment agreement (Johnson); (6) breach of empl oyment agreement
(Ollmann); (7) tortious interference with employment contracts (CFI); (8) tortious
interference wit h employment contracts (PFI); ( 9) declaratory judgment (CFI); and
(10) civil conspiracy (all respondents). The district court order referred to arbitration under
the LS A the trad e-secret-misappropriation count, the breach -of-the-LSA count, and the
tortious-interference-with-employment-contract count.
In November 2015, HDM submitted a specification of its claims in the arbitration
proceeding, setting out claims for : (1) failure to purchase only SuperFabric; (2) failure to
pay royalties; (3) use of confidential information; (4) manipulation of orders; (5) violation
of the covenant of good faith and fair dealing; (6) misappropriation of trade secrets under
MUTSA; (7) copyright infringement; and (8) trademark infringement. HDM sought:
(1) damages; (2) a declaration that LSA’s exclusive license to PFI was null and void; (3) a
permanent injunction against PFI’s use of HDM’s information; (4) a permanent injunction
against PFI’s manufacture or sale of R-fabric; and (5) attorney fees and costs.
An eight-day arbitration hearing in January and February 2016 resulted in a 50-page
reasoned decision and award (the award). The a rbitrator found that PFI had breached the
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LSA by fai ling to purchase only HDM’s SuperFabric and by not paying royalties , and
granted HDM the $177,323 it claimed to be owed in royalties. In accord with the LSA
provision that the unsuccessful party was to pay “[t]he fees of the arbitrator(s) and other
costs incurred by the parties in connection with such arbitration,” the award required PFI
to pay all arbitration expenses and fees. The arbitrator also granted HDM’s request for an
injunction against PFI’s further manufacturing of R-fabric. But, the arbitrator found for
PFI on HDM’ s claim 3 (use of confidential i nformation), claim 4 (breach of LSA on
purchase orders), claim 5 (breach of covenant of good faith and fair dealing), claim 7
(copyright infringement), and claim 8 (trademark infringement), and on HDM’ s claim of
tortious interference with its former employees’ confidentiality agreements. The parties’
stipulation and an order confirming the award were filed with the district court.
Respondents moved for summary judgment on the claims remaining before the
district court, arguing that appellant’s case should be dismissed because the award was a
final judgment that resolved all the issues. HDM moved for partial summary judgment,
arguing that the award resolved all issues except damages on some counts and all issues
except justification and damages on other counts. Following a hearing, the district court
issued an order granting respondents’ summary -judgment motion and dismissing the case
and denying HDM’s motion.
HDM challenges the grant of summary judgment, arguing that there is no preclusive
effect from three of the award’s determinations, namely the determinations that HDM is
not entitled to damages for lost profits ; that PFI did not act in bad faith, so HDM is not
entitled to attorney fees under MUT SA; and that PFI did not breach the covenant of good
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faith and fair dealing, so HDM i s precluded from presenting evidence of Van Ermen’s or
CFI’s malice in support of its tortious-interference claim.
D E C I S I O N
HDM explicitly challenges the grant of summary judgment dismissing its case on
the ground that the doctrine of res judicata precludes litigation of matters already resolved
by the award. On an appeal from a summary judgment, this court reviews de novo both
whether there are any genuine issues of material fact and whether the district court erred in
its application of the law. STAR Ctrs., Inc. v. Faegre & Benson, LLP, 644 N.W.2d 72, 76
(Minn. 2002). This court also reviews the application of res judicata de novo. Rucker v.
Schmidt, 794 N.W.2d 114, 117 (Minn. 2011). “Res judicata not only applies to all claims
actually litigated, but to all claims that could have been litigated in the earlier action.”
Hauschildt v. Beckingham, 686 N.W.2d 829, 840 (Minn. 2004).
1. Lost Profits
The award addressed HDM’s claim for $439,487 in lost profits:
HDM bases its claims for lost profits on . . . [the]
testimony [of an HDM officer] that he took information from
PFI on its sales of product with [R -fabric], and applied PFI ’s
gross margins to compute [HDM’s] profits had [HDM] made
the sale. Paragraph 13(d) of the [LSA] provides that “[i]n no
event will a party have any liability to another party under [the
LSA] to any damages that consist of lost profits, loss of
business or special damages.” This forecloses an award of lost
profits.
. . . Paragraph 13(d) refers not only to damages in
indemnification but also “under [the LSA].”
The measure of damages would not, in any event, be
lost gross profits. As claimant, HDM bears the burden of
proving damages to a reasonable degree of certainty. The
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information presented does not allow a computation of
damages for lost net profits to a reasonable degree of certainty.

The award also considered lost profits in a section on legal fees and costs:
HDM further seeks an accounting for disgorgement of
profits under [MUTSA]. Minn. Stat. § 325C.03(a) provides
that “damages for misappropriation of trade secrets can include
both the actual loss caused by misappropriation and the unjust
enrichment caused by misappropriation that is not taken into
account in computing actual loss. In lieu of damages measured
by any other methods, the damages caused by misappropriation
may be measured by imposition of liability for a reasonable
royalty for a misappropriator’s unauthorized disclosure or use
of a trade secret.”
First, given the minimal [amount] of HDM’s
information used, an award of disgorgement of profits is not in
order. For the reasons noted above, no basis has been given on
which such an award could be computed in any event. Second,
the statute specifically provides for payment of a royalty for
use of a trade secret. Here, the [LSA] already provides for
payment of royalties, which have been computed and will be
awarded.

Thus, the award gran ted HDM a royalty of $177,323, the amount that HDM itself had
computed as the royalty due , and concluded that HDM was entitled to neither lost profits
nor disgorgement of profits.
The district court paraphrased Minn. Stat. § 325C.03(a) (2016), noted that HDM
had been awarded a royalty payment, and said,
The arbitrator noted that the [LSA] specifically provides
that no damages for lost profits may be awarded. Despite this
finding, the arbitrator went on to find that HDM had not
presented evidence that would allow a computation of lost net
profits. HDM had the opportunity to litigate the issue of lost
profits and other damages under MUTSA. . . . The finding that
[respondent] PFI misappropriated trade secrets was based on
the actions of [re spondents] CFI and Ollmann. There is no
evidence that [they] misappropriated any trade secrets that
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were not considered by the arbitrator or that [they] caused any
additional damages that were not considered by the arbitrator.
The arbitrator’s award of damages for the misappropriation of
trade secrets claim by PFI [i.e., the royalty] forecloses an award
of additional damages from the remaining [respondents].

(Emphasis added).
HDM relies on the fact that the award sets out two alternative reasons for not
awarding lost profits, i.e., the LSA language and the finding that HDM had not presented
evidence to support a computation of lost net profits, and on the district court’s “Despite
this finding” phrase, to argue that the award’s finding that HDM had not presented evidence
concerning the amount of lost profits was dicta and therefore did not preclude HDM from
offering that evidence to the district court. HDM’s argument implies that, whenever two
or more reasons are provided for a conclusion, all reasons ex cept the first are dicta. But
“where there are two grounds, upon either of which the judgment of the trial court can be
rested, and the appellate court sustains both, the ruling on neither is [dicta].” State ex rel.
Foster v. Naftalin, 246 Minn. 181, 208, 74 N.W.2d 249, 266 (1956) (quotation omitted).
Moreover, “the modern rule [is] that a claimant may not re-litigate issues determined
adversely to him in a prior action against another adversary, including issues relating to the
damage he has sustained.” Restatement (Second) of Judgments § 49 cmt. a (2017). HDM’s
lost-profit issue was determined adversely to HDM against PFI; HDM may not re -litigate
the lost-profit issue against the other respondents.
The district court did not err in concluding that t he award’s conclusion that HDM
was not entitled to lost profits is not dicta and that it precludes the litigation of the issue of
HDM’s entitlement to lost profits.
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2. Bad Faith
MUTSA provides that “[i]f . . . willful and malicious misappropriation exists, the
court may award reasonable attorney’s fees to the prevailing party.” Minn. Stat. § 325C.04
(iii) (2016). HDM sought attorney fees under MUTSA.
The award states:
[A] number of factors lead to a conclusion that
[respondent] Dr. Ollmann used HDM’s information he gained
while working there [i.e., at HDM]. . . .
. . . .
[But] CFI’s use of HDM’s information was not
extensive. There is no indication that . . . Ollmann’s formulas
made at HDM are those used in SuperFabric. Nor is there any
evidence that the formula for the resin in [the ] R-fabric is the
same as for SuperFabric. Nonethel ess, use of the information
. . . Ollmann gained while at HDM to make the formula for
resin in [the R-fabric] likely hastened the development of [the
R-fabric,] which then replaced SuperFabric.
. . . .
. . . [MUTSA] only allows for recovery of fees for
“willful and malicious mi sappropriation.” Minn. Stat.
§ 325C.04. While PFI did make some use of HDM’s trade
secret information in formulating resin, such action was no t
willful and malicious.

The district court stated:
The arbitrator found that PFI made some use of HDM’s trade
secret information in formulating resin for [R -fabric],
specifically that Ollman n used HDM’s information that he
gained while working for HDM. The arbitrator found that
CFI’s use of HDM’s information was not extensive, but that
use of the information that Ollmann gained while working for
HDM “likely hastened the development of [the substitute]
fabric, which then replaced SuperFabric.”. . . The arbitrator’s
findings that PFI misappropriated trade secrets include
findings that CFI and Ollmann misappropriated trade secrets.
. . . .
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. . . The arbitrator specifically found that PFI’s use of HDM’s
trade secret information in formulating resin was not willful
and malicious. . . . PFI and CFI are intertwined to the extent
that the arbitrator used the terms interchangeably and attributed
CFI’s actions to PFI. For example, PFI did not formulate the
resin, CFI did, but as stated above, the arbitrator referr ed to
PFI’s use of trade secrets in formulating resin. PFI was found
to have misappropriated trade secrets through the actions of
Ollmann and CFI. HDM admits that CFI and Ollmann were in
privity with PFI. HDM had the opportunity to present evidence
on the issue of willfulness and maliciousness, not only as to
PFI, but also as to CFI and Ollmann in the effort to prove that
PFI acted willfully and maliciously. The issue [s] of whether
PFI’s, CFI’s, or Ollmann’s actions were willful and malicious
all involv e the same set of facts. HDM had a full and fair
opportunity to litigate the issue. Further litigation of the issue
is precluded.

HDM argues that Ollmann’s “state[] of mind [is] not ‘identical’ to the state of mind
of PFI.” But Ollmann had been recruited by PFI to create and produce R -fabric; he had
become a PFI employee . At arbitration, HDM argued, successfully, that Ollman n’s acts
made PFI liable for misappropriation; Ollmann’s acts were the basis not only of the award’s
conclusion that PFI misappropriated HDM’s trade secrets but also of its conclusion that
the misappropriation was not willful and malicious. In the memorandum supporting its
motion for partial summary judgment, HDM argued that “CFI and Ollmann were in privity
with PFI.” HDM does not explain how a corporation’s “state of mind” can be different
from the “state of mind” of those from whose acts the corporation’s state of mind are
inferred, nor how, given that PFI’s misappropriation was not willful and malicious, the
misappropriation of its agents—Ollmann and CFI—could have been willful and malicious.
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The district court did not err in concluding that the award precluded any further
litigation of the “willful and malicious” issue to enable HDM to recover attorney fees under
MUTSA.
3. Covenant of Good Faith and Fair Dealing
The award dismissed HDM’s claim of PFI’s violation of the covenant of good faith
and fair dealing:
Minnesota law requires a claim for breach of the duty of good
faith and fair dealing to allege “a causal link bet ween the
alleged breach and the party’s claimed damages.” La Societe
Generale Immobiliere v. Minneapolis Community
Development Agency, 44 F.3d 629, 638 (8th Cir. 1994).
I find no violation of the covenant. While I have found
that PFI’s creation and use o f R-fabric violated the [LSA], I
cannot say the violation was in bad faith. PFI was concerned
that HDM would not be able to continue to supply fabric, a
critical threat to its business. Indeed, it appears to have
believed that HDM was in serious danger o f going bankrupt
and knew that Dr. Kim had consulted bankruptcy counsel. . . .
Because HDM was PFI’s most important supplier, PFI’s
concerns are understandable, although in hindsight they did not
come to pass.
These concerns led PFI to seek further inform ation
about HDM’s financial condition and viability. . . . PFI has not
been shown to have an ulterior motive in making inquiries
about a business matter of critical importance: HDM’s
continued ability to supply SuperFabric in light of its financial
position.
PFI also started planning for the contingency that HDM
would not be able to meet its obligations. This included
continuing its business if HDM was no longer viable, which
led it to explore an alternative source of fabric supply. . . .
PFI’s position on the proper interpretation of the [LSA]
changed over time, as did its beliefs concerning the extent of
HDM’s intellectual property. After a full presentation of
evidence and study, I have concluded PFI’s interpretation of
the [LSA]’s definition of Fabric and beliefs regarding HDM’s
trade secret and patent rights were incorrect. But I do not
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conclude that its actions were taken in bad faith. See Sterling
Capital Advisors, Inc. v. Herzog, 575 N.W.2d 121, 125 (Minn.
App. 1998) (bad faith is not found base d on a mere mistake
regarding one’s rights or duties).
. . . .
HDM has not proven a causal connection between PFI’s
alleged actions and any damage to HDM apart from damages
caused by PFI’s contractual breaches discussed above. This
forecloses any additional relief based on its claim for breach of
the covenant of good faith and fair dealing.

The district court agreed:
The arbitrator found that PFI’s breach of the [LSA] was
not in bad faith. The arbitrator considered internal
communications of [responde nts], information known to
[respondents] regarding HDM’s financial condition and
allegations of manipulation of orders by [respondents]. . . .
The arbitrator considered all of CFI’s and Van Ermen’s actions
when determining whether PFI breached the [LSA] in bad
faith. Ultimately, after examining all of the evidence before
him, the arbitrator determined that the breach was not in bad
faith. HDM had a full and fair opportunity to litigate the issue
of bad faith on the part of CFI and Van Ermen. [Respondents’]
motion for summary judgment on these counts is granted.

HDM argues that the determination that PFI did not act in bad faith does not
preclude HDM’s claim of tortious interference on the part of Van Ermen, who maliciously
caused PFI to use R-fabric instead of SuperFabric.2 But that claim is based on the premise
that Van Ermen was the sole decision-maker, when the decision was made by all three PFI
officers, not solely Van Ermen. Moreover, the award clearly concluded that the decision
was devoid of malice: “PFI was concerned that HDM would not be able to continue to
supply fabric, a critical threat to its business.” There is no indication that, while PFI was

2 HDM’s tortious interference claim, if successful, could entitle HDM to legal expenses
and lost profits.
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concerned about its supply of the fabric essential to its operation, its CEO Van Ermen was
concerned only with damaging HDM. A s the award pointed out, no damage other than
that resulting from the contractual breach was shown.
HDM also argues that the district court erred in stating that the same evidence was
presented to both the arbitrator an d the district court , asserting that the district court was
presented with, and should have relied on, additional evidence. Assuming this to be true,
HDM does not explain why evidence of Van Ermen’s malice would not have been relevant
to its claim that PF I acted in bad faith and therefore presented to the arbitrator. “Res
judicata not only applies to all claims actually litigated, but to all claims that could have
been litigated in the earlier action.” Hauschildt, 686 N.W.2d at 840.
HDM also argues tha t the determination that PFI did not breach the covenant of
good faith and fair dealing does not preclude HDM’s claim of tortious interference on the
part of CFI. The award first set out the five elements of tortious interference: (1) the
existence of a c ontract; (2) the alleged wrongdoer’s knowledge of the contract;
(3) intentional procurement of the breach; (4) without justification; and (5) damages, see
Kallok v. Medtronic , Inc., 573 N.W.2d 3 56, 362 (Minn. 1998), then concluded that this
claim failed: “CFI made some use of HDM’s trade secrets in formulating the R-fabric resin.
This was a breach of Dr. Ollman n’s confidentiality agreement. No damages have,
however, been proven apart from the damages based on breach of the [LSA] by PFI’s
substitution of R-fabric.” Again, the failure of HDM to show damages from CFI’s acts to
support its claim of PFI’s breach of the covenant of good faith and fair dealing meant that
evidence of any such damages would be precluded from subsequent litigation.
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“[A]rbitrators are the final judges of both law and fact; every reasonable
presumption is to be exercised in favor of the finality and validity of the arbitration award,
thus the scope of judicial review of an arbitration award is extremely narrow.” Peggy Rose
Revocable Trust v. Eppich, 640 N.W.2d 601, 606 (Minn. 2002). The district court did not
err in concluding that the arbitrator’s award is final and valid and dismissing the remaining
claims.
Affirmed.